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Crown Minerals – Minerals Programme Reform

Following on from the recent introduction of the Crown Minerals (Permitting and Crown Land) Bill 2012 (the Bill) into Parliament, the draft Minerals Programme for Petroleum and draft Minerals Programme for Minerals (Excluding Petroleum) were released by New Zealand Petroleum & Minerals (NZPM) late last week for consultation.

A summary of the more significant proposals in the Bill can be found here: Crown Minerals Act reform is here. This article does not seek to cover ground which has already been covered in that earlier commentary.

The Minerals Programmes are important as they provide further context and give operational effect to the Crown Minerals Act 1991 (the Act), including a number of the new provisions in the Bill. We believe the changes proposed in the new Minerals Programmes are likely to be more far reaching, in an operational and practical sense, than the changes proposed in the Bill.

Submissions on the draft Minerals Programmes are due by 5 December 2012 and NZPM has made it clear that the draft Minerals Programmes will be amended as required to reflect changes to the Act resulting from the Bill as it moves through the legislative process.

Although it is not possible to comprehensively summarise all the proposed changes to the revised Minerals Programmes in this article, we set out below some of the more interesting aspects of the proposed draft Minerals Programme for Petroleum:

Form: the Minerals Programme has adopted the more discursive style of the Minerals Programme for Petroleum (2005) rather than the regulations-based style used in the more recent Minerals Programme for Minerals (Excluding Petroleum) 2008. This should make the Minerals Programme easier to follow and the Crown seems to have listened to industry on this aspect.

Purpose underlying the Act: the Minerals Programme gives a reasonably detailed explanation of the proposed new purpose statement to be included in the Act – being to promote prospecting for, exploration for, and mining of Crown owned minerals "for the benefit of New Zealand". The phrase "for the benefit of New Zealand" has been identified in the Minerals Programme as the over-arching objective of the purpose statement and as the touchstone for interpreting the rest of the purpose statement and the Act more generally.

The Minerals Programme states that "the benefit of New Zealand" is best achieved by "increasing New Zealand's economic wealth through maximising the economic recovery of New Zealand's petroleum resources". This provides some useful context for the rather general purpose statement proposed in the Bill.

Timing and procedural issues with NZPM: The Minerals Programme contemplates that transaction costs should be minimised, doing business with Government should be simpler and applications for permits (including changes to permits) are to be processed quickly and efficiently. This should help to alleviate some of the long held industry concerns in relation to these issues.

Health and safety preliminary assessments: There has been lot of industry comment about the proposed preliminary HSE assessment, and the Minerals Programme provides some useful clarification. If a permit applicant is currently undertaking similar activities (as operator) to those proposed under the permit application, then in the absence of clear evidence to the contrary, the Minister will be satisfied that the operator is likely to be able to meet expected HSE requirements for the types of activities proposed under the permit. For new entrant operators, the preliminary HSE assessment will be more involved.

Non-exclusive prospecting permits: currently, petroleum prospecting permits generally confer exclusive rights on the permit holder. However, the proposed new Minerals Programme provides for PPPs to be non-exclusive and that the Minister may grant multiple PPPs over the same or overlapping areas. This is a significant change in policy and seems intended to accommodate the Crown's desire to encourage a market for speculative offshore surveys. The existing policy that PPP holders do not have any right to obtain subsequent permits continues (which is a necessary result if all future PPPs will be non-exclusive in nature).

PPPs over existing acreage: Another significant change is that if the proposed PPP area is already held under an exploration or mining permit (or existing privilege), the PPP holder must obtain the consent of the existing permit holder. However, the underlying permit holder is not able to unreasonably refuse permission (and where there is a dispute the Minister will make a binding determination). It is not difficult to see numerous practical issues arising with this proposal.

Speculative prospecting information: a prospecting permit holder who wishes to be a speculative prospector must apply for a determination by the Minister and can also lose its status as a speculative prospector if it no longer qualifies. Information provided to NZPM by a speculative prospector will not be made public for 15 years after the information is first obtained. However, if the speculative prospector loses its status, then the special confidentiality and information protection provisions will no longer apply. In addition, the 15-year confidentiality period will apply to information that is obtained by a speculative prospector and sold under licence to a PEP or PMP holder. It will be interesting to see whether a PEP holder is able to satisfy work programme requirements (e.g., seismic data acquisition requirements) by purchasing that data from a speculative prospector.

Reservation of land: the Minister has the power to specify land that will be withheld from allocation for up to three years. This is directed towards ensuring that prospective acreage is reserved for competitive allocation through a Blocks Offer. This approach is likely to be less significant in practice with the recent abolition of PIT permit allocation, but will still remain relevant for extension of land applications.

Petroleum exploration permit bids: some clarity is provided on how the Minister will rank and assess competing exploration permit bids for a particular block. For example, the Minister will favour committed work over contingent work and will prefer work categories with high information-gathering value.

Exploration permit duration: the Minister may set different durations (up to 15 years) for exploration permits offered under a Block Offer. The Minister will take into account whether blocks are onshore or offshore, geographic remoteness, water depth, the extent of previous exploration in an area and relevant geological information about the area. However, there is no specific guidance in the Minerals Programme as to likely durations for different acreage types as was set out in the consultation document. This suggests the decision will be made on a case-by-case basis.

Exploration permit transition: the Bill permits (and will ultimately require) existing permit holders to transition to the new regime, and the Minerals Programme makes it clear that they will be able to take advantage of the proposed extended exploration permit durations. One expects this will be one of the key factors that causes existing permit holders to transition to the new regime.

Changes to exploration work programmes: consistent with the Crown's various public statements, the Minerals Programme records that the Minister will only consent to changes to key deliverables within each stage of the exploration work programme in exceptional circumstances. Although some further guidance is provided as to what this means, it is clear the Crown's expectation is that change of condition applications will be sought (and granted) less frequently and that permit holders will need to better manage their ability to deliver on work programme commitments.

Transitioning to next stage of exploration permits: it is contemplated that exploration permit holders will agree with the Crown the work programme for the next stage of the exploration permit before transitioning to it. However, where agreement cannot be reached or changes are sought to the contingent work programme originally proposed, the Crown has the residual ability to finally determine the required work programme. It will be interesting to see how this approach works in practice.

Exploration extension of land applications: the procedure and requirements for EOL applications have been revised. An interesting new requirement is that where there is competitive interest in the requested extension area, the Crown will notify other nearby permit holders to enable them to identify alternative prospects which extend from their permit areas into the areas for which the extension has been sought. This is a change from the current approach.

Alternative field plans: as part of a PMP application, the Crown may require alternative field development plans to be submitted and evaluated. This is intended to ensure the development plan is optimal in terms of ensuring maximum recovery of economic reserves and good industry practice. This, together with the Crown's new ability under the Bill to seek to amend agreed development plans in some circumstances, represents a change in the extent to which the Crown can influence operations under a producing mining permit.

No overlapping permits: the Bill provides for section 30(8) of the Act to be repealed (which provides that overlapping petroleum permits may be granted with consent). This change is expressly recognised in the Minerals Programme – exploration and mining rights are exclusive and no other person may explore or mine for petroleum (other than gas hydrates) within the area of a current permit. We disagree with this proposal and believe that section 30(8) should be retained as it serves a useful function.

Gas hydrates: gas hydrate permits may overlap with PEPs or PMPs. A whole chapter has been included on gas hydrates and this indicates the Crown is expecting gas hydrates to become increasingly significant going forward. There are likely to be a number of difficult technical and risk issues that will need to be addressed where a conventional petroleum operation and a gas hydrate operation are being undertaken in close proximity.

Coal seam gas: The Crown has sought to address coordination and interferences issues between petroleum and coal activities where there are overlapping permits. Although these issues are already addressed to some degree in existing requirements, the new Minerals Programmes provide further clarification as to what is expected by the Crown.

There is clearly a considerable amount of detail included in the Minerals Programme that has been put out for consultation. Many of the changes proposed will, if they come into force, have significant implications for the way permit holders interact with NZPM and how they need to organise themselves in order to meet their obligations under the Act.